In Finland, variable rate mortgages are common, which to some extent is amplifying the impacts of monetary policy on economic growth and inflation. A key factor is the extent to which households have a financial margin to use as a buffer against increases in their loan servicing costs.
The Finnish economy will contract by 0.4% in 2023. Inflation is on its way down this year. Economic growth will pick up in 2024, albeit to a modest 0.9%. In 2025, growth in the economy will gather pace, reaching 1.5%.
The Finnish economy slipped into recession last autumn as a result of the energy crisis brought on by Russia’s war in Ukraine. The economy's weak performance will continue this year, as it takes time for the effects of high inflation and the rise in interest rates to be felt in full.
The war in Ukraine and the energy crisis are fanning uncertainty and driving up inflation. Reduced purchasing power will hit private consumption, and the economy will slide into a mild recession. Finland’s GDP will shrink by 0.5% in 2023. Growth will return in 2024, reaching 1.1%.
The alternative scenario in the Bank of Finland’s forecast for the Finnish economy examines risks surrounding the Bank’s December 2022 baseline forecast which, should they materialise, could lead economic growth to be weaker than projected. The scenario estimates the possible impacts on the Finnish economy if Russia’s war in Ukraine drags on and if the availability of energy weakens further and economic uncertainty increases.
Russia’s war in Ukraine threatens to push Finland and the entire euro area economy into recession. Disruptions in energy availability and supply chains may turn out to be more severe than anticipated, and market rates could rise more rapidly than expected.
The Finnish economy will grow 3.5% in 2021 and 2.6% in 2022. Growth is overshadowed by supply-side disruptions, high raw material prices and a deteriorating COVID situation. The rapid growth will be temporary, with the pace slowing to 1.3% by 2024.
The economy will grow approx. 1.2% per annum for the period 2021–2040, and thereafter growth will slow. Human capital threatens to decline from the 2040s. Developments can be influenced by investing in education/training and employment.
In the absence of supply bottlenecks, Finland’s GDP would grow 0.5 of a percentage point faster in 2021. We assume the supply-side disruptions will be smoothed out after 2022, and will not leave long-term scars on the economy.
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